The insurance you offered to S Corp 2% (or higher) shareholders as well as the rest of your employees determines the tax treatment for S Corp insurance. It also determines how you set up this non-cash fringe benefit in QuickBooks Desktop payroll.
To learn more about the treatment of insurance for S Corps, review IRS Notice 2008-1.
Depending on the insurance plan made available to S Corp 2% (or higher) shareholders, you can set up an appropriate payroll item in QuickBooks Desktop payroll to track and report the information for tax purposes.
1) If the 2% (or higher) shareholders have the same medical insurance plan offered to all S Corp employees, the plan is subject to federal and state withholding, but exempt from Social Security, Medicare, and FUTA.
2) If the 2% (or higher) shareholders have a different plan from other S Corp employees or the S Corp doesn't offer an insurance plan to employees at all, the plan is fully taxable.
Setting up S Corp 2% (or higher) Shareholder Insurance
There are 2 tax tracking types for S Corp Shareholder Insurance, depending on the plan offered to the 2% (or higher) shareholders and other employees. The 2 tax tracking types are directly related to the 2 type of offerings defined above. The set-up below is directly related to the two insurance offering types.
The Tax treatments of each type are shown in the QuickBooks Payroll Item illustrations below.
1) SCorp Pd Med Premium - this tax reporting type is used when the 2% (or higher) shareholder receives the same medical insurance plan as all other all S Corp employees. Under this configuration, the benefit is only taxable to federal and state withholding. Exempt from Social Security, Medicare, and FUTA.
Source: QuickBooks Enterprise v24 Enhanced Payroll Subscription Payroll Item
2) Fringe Benefits - this tax reporting type is used when 2% (or higher) shareholders have a different plan from other employees or don't offer the plan to employees at all. This is fully taxable.
Source: QuickBooks Enterprise v24 Enhanced Payroll Subscription Payroll Item
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